If you work for APS, you are likely to receive an email regarding your 2023 BENEFITS ENROLLMENT GUIDE. Open enrollment for APS begins on October 19th and closes on November 9th. Elections MUST be made by November 9th for the year ahead, and most of these elections cannot be amended throughout the year.
Individuals and families tend to brush over enrollment season, but there are a few items worth taking a second look at—including “free” money from APS, opportunities to save on taxes and potential cost savings.
Health Savings Account (HSA)
APS employees who choose The Consumer Plan will be allowed to contribute to an HSA through HealthEquity. Contributions are made pre-tax, and distributions are tax-free if used for qualified medical expenses.
If you opt into the HSA during open enrollment, you will receive a “free” contribution from APS—$750 for single employees and $1,500 for employees with two or more covered individuals. HSA contributions rollover from year to year and are not ‘use it or lose it’ like those in a Flexible Spending Account (FSA). Failing to opt in during open enrollment will cause you to miss out on the “free” contribution.
HSA contributions can be invested similar to a 401(k) and qualified medical expenses can be reimbursed at any point in time if incurred after the first contribution in an HSA. This creates a unique opportunity for a triple-tax-advantaged account—contributions go in pre-tax (even bypassing Social Security and Medicare Tax), contributions can grow tax deferred, and contributions can be removed tax free for qualified medical expenses. Please note—in the HealthEquity HSA offered by APS, you must have a $1,000 balance to begin investing.
Tax savings can be calculated as: HSA contribution x (1 – marginal tax rate including SS and Medicare).
For a list of HSA-eligible expenses: https://healthequity.com/hsa-qme
Dependent Care Flexible Spending Account (DC FSA)
Families tend to disregard Dependent Care FSAs because they believe that you cannot have both an HSA and an FSA. Though that is true with Healthcare FSAs, participation in an HSA does not affect your ability to contribute to a Dependent Care FSA.
Dependent Care FSAs allow you to set aside tax-free dollars (tax effect includes social security + Medicare) up to $5,000 for childcare or elder care. APS offers their DC FSA through HealthEquity.
Tax savings can be calculated as: DC FSA contribution x (1 – marginal tax rate including SS and Medicare).
For a list of DC FSA-eligible expenses: https://healthequity.com/dcfsa-qme
Supplemental Life Insurance
Special consideration should be given to insurance need and estate planning prior to making a life insurance election through the APS supplemental group life insurance policy. APS provides 1x salary death benefit at no cost to the employee while still employed (example: if you’re making $75,000/year, APS provides a $75,000 life insurance policy for you). APS offers a supplemental group life insurance policy with up to 6x salary death benefit that can only be opted into during open enrollment or a qualifying event—this is paid for by the employee.
If an insurance need does exist beyond the 1x no cost insurance, generally healthy people can purchase term life insurance at a lower premium than the APS supplemental group life insurance policy. Group life insurance policies are underwritten at the group level, meaning everyone in a certain age band gets treated the same way in terms of cost of a policy. Those in good health tend to get cheaper premiums with a private individual policy while not as healthy people tend to get cheaper premiums with group life insurance like that offered by APS.
Also important to note, is that group life insurance policies are renewed on an annual basis, which means your premium is subject to increase each year as opposed to being locked-in for a set period of time as a private term insurance policy would.
As an example, in a recent case study for a 52-year-old APS employee needing $550k of life insurance for ten years, we found that a private term life insurance policy would save this individual over $27,000 in premiums over the course of ten years if underwritten at standard health versus the APS supplemental life insurance option. If underwritten at best health, he would likely save a little more than $34,000 in premiums over those same ten years.
When comparing the APS supplemental group policy to a private policy, it is wise NOT to cancel any pre-existing life insurance policies intended to be replaced until the desired policy is officially in force.
We are familiar with the APS retirement plan(s) and benefits. If you have any questions during open enrollment or for any other end of year planning, feel free to contact Chandler Cole at chandler@knappcap.com or 602-266-1005.
Chandler Cole, CFP©
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This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
The case study involving the 52-year-old APS employee compared cost assumptions from APS’s group life insurance summary plan document and compared them to 10-year term life insurance quotes for a 52-year-old male in Arizona from 10+ large life insurance carriers. Underwriting is individual-specific, and there may not be a cost savings opportunity involved with attaining a private policy versus the supplemental life insurance offered through APS. Do not cancel pre-existing life insurance policies in anticipation of a new policy until it is formally in-force because insurability is not guaranteed.
LPL Financial, Knapp Capital Management and Arizona Public Service (APS) are separate entities.